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JUNE 5, 2006
By Jack and Suzy Welch Vive L'Europe -- Just Not Yet A new cadre of business leaders and entrepreneurs will help end the Continent's malaise People are always talking about the future of China and India, but where do you see Europe in five years' time? -- Dave Shapiro, Farmington Hills, Mich. Given everything happening in Europe -- the economic, political, social, and demographic trends, not to mention 1 million French people taking to the streets to protest one little labor reform -- it would be easy to write off the whole Continent as dead. But it's too early for that. Without doubt, Europe has been treading water for the past 10 years. As the rest of the world has rushed to globalize and become more competitive, Europe has just kept its head above the waves of change. We don't mean all of Europe, of course. Two decades ago, Britain faced the reality of the emerging global marketplace and liberalized its economy to stay competitive. And Eastern European countries such as Hungary and Slovakia have thrown off the shackles of communism with effective pro-business reforms. But those promising economies are overshadowed by the disturbing news coming out of France, Germany, and Italy. With their aversion to capital investment and risk-taking, the three pillars of Old Europe are practically paralyzed by their welfare-state economies. Consider a few statistics. Over the past 35 years, according to Joel Kotkin of the New America Foundation, the U.S. economy has created 57 million new jobs. In the same period, Europe, with a combined GDP about the size of the U.S., has created just 4 million. Meanwhile, the European unemployment rate hovers around 10%, double that of the U.S. Demographic statistics are similarly bleak. France, Germany, and Italy all have shrinking populations that (naturally) are also aging. And Europe is poorly positioned to reap gains from the growing science and technology sector: R&D spending per capita in France, Germany, and Italy, for instance, is about half that of the U.S. Perhaps most worrisome, the Continent seems to be suffering from a collective bad mood. Asked "How satisfied are you with your life?" by a Harris Interactive (HPOL ) poll, around 18% of Europeans (from France, Germany, and Italy) answered "very," compared with 57% of Americans. Worse, these Europeans said they felt stuck in a "bad place." Asked "How do you expect your personal situation to change in five years?" only a third predicted improvement. By contrast, two-thirds of Americans expect a better future. So if Europeans seem ready to write their own obituary, why aren't we? Three main reasons. First, Europe is simply too large and established an economy to collapse. Remember 1980? Japanese competition was going to put America out of business. The U.S. unemployment rate approached 10%, inflation was at 14%, and the prime rate was more than 20%. Like Europeans today, Americans back then were so morose that President Jimmy Carter saw a "malaise" across America. BUT TOO MUCH was at stake for surrender. Americans elected a new President whose defining characteristic was optimism. Ronald Reagan galvanized national pride by taking on communism, reducing taxes, and releasing the entrepreneurial spirit that revived the U.S. economy. Europe also has too much history, infrastructure, and promise to slide into a permanent economic abyss. Its workforce, for instance, is among the most highly educated in the world. And there are signs, albeit tepid, of emerging discontent with the status quo. The quasi-reformer Angela Merkel was elected Chancellor in Germany. And the French government, hoping to spark job growth, at least attempted to change an employment rule before it was batted down by angry protests. The second reason is Europe's exciting new cadre of transformative business leaders -- Carlos Ghosn of Renault, Dieter Zetsche of Mercedes, and Klaus Kleinfeld of Siemens (SI ), to name just three. These executives, and they are not alone, understand that their companies operate in a global economy and are making the tough changes required to stay competitive. The final reason that Old Europe will survive is New Europe. The Eastern European nations, with their pro-business governments, are churning out a whole new generation of entrepreneurs who see opportunity everywhere and boundaries nowhere. So, where will Europe be in five years? It won't be "fixed." But it will be better. In fact, drawing on the energy of its new business leaders and entrepreneurs, and increasingly cleansed of the calcifying effects of the socialist system, Europe will be well on the road to a positive economic future that apparently, and sadly, many of its own people don't foresee today.  Jack and Suzy Welch look forward to answering your questions about business, company, or career challenges. Please e-mail them at thewelchway@BusinessWeek.com For their podcast discussion of this column, go to www.businessweek.com/search/podcasting.htm
BW MALL
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